Stan Collender's Capital Gains and Games

May 19, 2013: A Day Of Extreme Federal Budget Shame

Stan Collender — Mon, 20 May 2013 07:09:19 +0000

Sunday, May 19, 2013, was one of the saddest and most notorious moments in the sordid history of the federal budget.

Let's start from the beginning.

It's December 2012 and House Republicans are facing a number of politically very difficult and unpalatable choices because taxes will go up automatically on January 1, the sequester will go into effect on January 2 and the by-now- commonplace-but-still-called "extraordinary" measures the Treasury has been using for several months to deal with the problems caused by not raising the debt ceiling are about to be exhausted.

The tax problem was dealt with by agreeing to a smaller increase than was set to happen under current law and then blaming the White House for it. The sequester was postponed until March 1 when both the GOP and the administration thought that the threat of cuts to domestic and military programs, respectively, would cause the other to back down.

But it was the unique and disgraceful way the debt ceiling was handled that deserves the scorn.

In theory, with more exotic options like the trillion dollar coin and 14th amendment rejected by the White House, the only two choices facing Congress at that moment were to vote to increase the debt ceiling so the federal government could borrow the cash it needed to keep operating, or not to raise the borrowing limit and force Washington to default on some of its obligations. It was a very clear pass/fail, true/false, black/white choice.

This presented the House GOP with two very difficult choices. Voting against the debt ceiling hike was becoming increasing untenable as Wall Street and corporate America made it clear that was not an appropriate alternative from a financial perspective. But voting for the debt ceiling increase was a total nonstarter for the tea party wing of the GOP, which since it first came to prominence in 2010 had made debt ceiling votes one of its biggest political litmus tests.

The GOP's solution to this dilemma was disgraceful. Instead of taking a political bullet and voting either for or against the debt ceiling, it came up with a scheme that allowed them to do neither. Rather than actually increase the debt ceiling and incur the wrath of their base, House Republicans brought a bill to the floor that required the federal debt ceiling to be iGNORED, that is, the Treasury could borrow whatever amounts it needed to cover its cash needs without any restrictions.

Then on May 19, without an additional vote and, therefore, with no member of the House or Senate having to go on record, the official federal debt ceiling would be raised to the amount the government had actually borrowed over the previous four-plus months. At that point, with the debt ceiling reached, the Treasury again would start to impose the so-called extraordinary measures and the countdown to the next debt ceiling crisis would begin.

At best, the federal debt ceiling is an anachronism, a vestigial organ of the federal budget process that should be eliminated. The actual borrowing needs are determined when legislation is enacted that changes either the amount the government spends or raises in revenues. Increases in the debt ceiling should be part of those bills rather than separate decisions and no member of Congress should be able to vote for a tax cut or spending increase unless he or she agrees at the same time to raise the debt ceiling to accommodate that choice.

But unless and until members of Congress and the White House have to face their constituents for agreeing to eliminate the debt ceiling, they should not be able to allow it to be ignored without taking responsibility for their actions.

The ultimate irony here is that congressional Republicans have been complaining about Senate Democrats not producing a budget between 2009 and 2012. That's certainly true; Senate Democrats found the votes in favor of a congressional budget resolution with high deficits very politically difficult and decided that the better course of action was to ignore the requirement.

But now the same people on Capital Hill who relentlessly have castigated Democrats for ignoring their budget resolution responsibilities are the ones that authored the completely analogous procedure for the federal debt ceiling.

That makes May 19, 2013, one of the most egregious abrogations of legislative responsibility in U.S. history.

Why No One Is Celebrating CBO's New And Much Lower Deficit Estimate

Stan Collender — Wed, 15 May 2013 21:11:22 +0000

There was a time when a $200+ billion reduction in the federal budget deficit would have been big news and hailed as a singular achievement worthy of either fiscal sainthood or a dance-on-the-table party...or both.

Yet yesterday's Congressional Budget Office report showing that the fiscal 2013 federal deficit will be $642 billion, $203 billion less than CBO's previous estimate of $845 billion, did not create any spontaneous cannonizations or celebrations. It also didn't change the still-stalemated and crisis-oriented federal budget debate by even a small amount.

The bottomline: It's in almost no one's interest to be happy about the budget news that should have made everyone happier.

Here's why.

1. The $642 billion estimate is indeed an overwhelming reduction from the 2009 $1.4 deficit and a substantial change from CBO's February projection. But it is also $642 billion more than no deficit at all. That means that all sides in the budget debate will still be able to use even this much lower number to "prove" whatever point they were making before the new estimate was released.

2. The White House couldn't take a victory lap because anything it said would have been mischaracterized by congressional Republicans as the president supporting a $600+ billion deficit.

3. Even though they could take some credit for keeping the sequester in place and, therefore, lowering spending, the congressional Republican leadership couldn't take a victory lap because that would have been taken by some tea partiers as an indication that the speaker and majority leader were not going to demand additional reductions.

4. There's anything but universal agreement among economists that reducing the deficit in the current economic environment is the right fiscal policy and, therefore, that the reduction in the deficit is good news. Given the still-slow corporate and consumer spending, the continuing cutbacks by state and local governments and the continuing economic problems around the word that are limiting trade with the U.S., Americas austerity-like fiscal policy that has been in place for several years may well be the exact wrong plan at this time.

5. The year-by-year deficit is quickly being replaced by the national debt as the number one fiscal issue. This isn't surprising: the deficit is falling while the debt is rising and the deficit is in billions while the debt is in trillions. The fact that CBO projects the debt will soon be in a range that most economists would call insignificant makes no difference when the multi-trillion dollar debt sounds so scary.

6. In the wake of the report, the deficit hawk groups are still saying that the deficit is as much of a problem as it was before and pushing for a grand bargain. This too isn't a surprise. After all, these groups would have less reason for being and far less ability to raise funds if the deficit didn't exist as an issue.

7. Although the CBO forecasts show the deficit falling from 2013 to 2015, it also shows it rising in nominal terms each year thereafter. Even though that is far less meaningful than the deficit as a percent of GDP, which stays in the low 3.5 percent range, it still allows everyone to cherrypick the results that best "prove" what they want to say.

So...Do the new CBO numbers mean that there won't be a fight this fall over the debt ceiling and a continuing resolution? Absolutely not.

Rosenthal Cartoon

Dan Rosenthal — Wed, 15 May 2013 17:27:55 +0000

House GOP Debt Ceiling Bill Is Waste, Fraud And Abuse

Stan Collender — Mon, 06 May 2013 10:17:10 +0000

What do you call the effort that will be made in the House of Representatives this week to pass a budget-related bill that will never be enacted, won't work as promised even if it somehow does get signed into law and uses the legislative process for purely political purposes?

"Typical" may be the most common answers. My suggestion? That tried-and-true federal budget phrase so often used to complain about federal spending: "Waste, fraud and abuse."

The legislation is the Full Faith and Credit Act, a bill that supposedly would make payments to federal bond holders the priority if the federal debt ceiling isn't raised and the government doesn't have enough cash to pay all its bills when they come due. The legislation would allow the Treasury to borrow more than allowed by the statutory debt ceiling to make these payments.

Why is this waste? Because there's absolutely no chance it will ever become law. Not only will the bill never be taken up by the Senate, it will be vetoed by the president if it somehow manages to be adopted by Congress and is sent to the White House. As a result, the hundreds of thousands of dollars that have already and will continue to be spent by the House to adopt this legislation is, to use the polite term, wasteful.

It's also fraudulent because the legislation won't work as planned. The the agency that actually pays the government's bills -- the Federal Reserve -- has said repeatedly over the years during both Democratic and Republican administrations that it has no ability to prioritize payments and must simply pay checks in the order in which they are presented.

Abusive is the easiest of the three. The bill is an under-the radar way to increase the federal debt ceiling without actually voting to do that. Add to that the fact that the bill would mean that the government would be in technical default on contracts and other non-bond obligations if Treasuries were made first in line and the extent of the abuse being perpetrated becomes larger and more obvious.

Federal Spending Is Very Popular. Episode 9: The FAA Sequester

Stan Collender — Mon, 29 Apr 2013 10:44:19 +0000

Last August and September, I did a series of eight posts about how, contrary to Tea Party and John Boehner assertions, federal spending was actually very popular. As I said at the time, Americans don't want less government; they just want government that costs less.

The latest installment -- episode 9 -- happened last week when the air traffic control problems caused by the sequester were fixed in what by congressional standards was warp speed.

Faced with an immediate backlash from flyers, Congress and the White House enacted legislation that fixed the problems less than a week after the furloughs caused long delays in the skies and long security lines at the airports.

Yes...Flyers are a relatively elite group relative to the population at large. Yes...this is a group that has more influence and a larger megaphone than the average voter. And yes...the delays were easier for the media to cover and so were more visible than sequester-related reductions in other programs.

But my main point from last year's series of posts is just a relevant now. Faced with the choice of a reduced federal service or a reduction in spending, the decision was immediate and unmistakable: a federal service was the winner.

I looked at the coverage of the FAA furloughs closely for any sign of anyone declaring that this is the price we have to pay for reducing the deficit. As far as I can tell either no one said it, or no one said it loud enough for it to be recorded. Convenience rather than belt tightening was the clear preference. (Please let me know if you saw the opposite.)

This says a great deal about the budget debate that's ahead.

1. Federal programs that have the potential to inconvenience large groups -- like air traffic control-- are going to be very difficult to cut no matter what.

2. As happened with the sequester, spending reductions for these programs put in place with great fanfare and lots of political chestbumping are very likely to be reversed within a relatively short period. It might take longer than a week, but the reversals should be expected and built in to projections.

3. If the FAA was hard to cut, think about Medicare and Medicaid, which are far more important to many more people than air traffic control. Indeed, the biggest lesson of the FAA sequester reversal is that changes in Medicare and Medicaid will be far more difficult that anyone is imagining.

4. Federal employees should be worried. The administrative and operating expenses of most departments and agencies will not be a great concern to voters because it's hard to see how most of that affects them directly.

5. The National Park Service may well be the next reversal if furloughs cause the parks to close one day a week or month as has been rumored.

6. The IRS may also be a candidate for a reversal if it becomes obvious that refunds are seriously delayed.

Why Isn't Grover Angry About This? Sequester Causing Voluntary Tax Increases

Stan Collender — Thu, 25 Apr 2013 10:26:16 +0000

I've been meaning to ask this question for a while: Isn't this the equivalent of a tax increase?

Here's the story.

The sequester spending cuts forced the superintendent of Yellowstone to decide not to clear the winter snow from the park's road as early as it typically had been plowed in the past because...well...it will eventually melt as the weather gets warmer anyway. That seems like a perfect solution to the sequester-caused spending cut except for the businesses in and around the park. No plowing meant no tourists, and that meant much less business.

According to this story by Mark Barabak in the Los Angeles Times, the prospect of lower sales convinced many of the tourist-related businesses around Yellowstone to pay for the plowing. The Cody and Jackson Wyoming Chambers of Commerce raised $170,000 to get the snowed plowed.

Wasn't this the equivalent of a tax increase for those people who paid to have the snow cleared two weeks early?

Yes, the payents were not required by law. But that's a distinction without a difference. It was money eventualy paid to the state and local governments by businesses and individuals who otherwise would have used the funds for their own purposes.

Yes, there wasn't a legal penalty for not paying into the chamber of commerce plowing fund. But there almost certainly was peer pressure from the others that did, and perhaps perceived or real threats of taking their business elsewhere if you didn't participate. That's at least as much coercion as anything the IRS could do.

And yes, you could call it a user fee instead of a tax. But what's the real difference between the two when the bottom line is the same, that is, it was still money out of the pockets of the businesses.

I'm pretty sure that the businesses that paid into the plowing fund think that their taxes went up because of the sequester. After all, federal taxes did not go down when spending was cut and they still had to pay more to a government to get the snow removed.

So tell me again why we shouldn't consider this a tax increase?

Rosenthal Cartoon

Dan Rosenthal — Wed, 24 Apr 2013 14:36:30 +0000

GOP And The Sequester: Disingenuous, Naive & Misinformed

Stan Collender — Wed, 24 Apr 2013 11:02:00 +0000

As I posted on March 1, the sequester -- the across-the-board spending cuts ordered by the Budget Control Act-- would only become real for most voters when the predictions of the impact of the reductions actually started to have a effect on their lives.

Although some people felt it almost immediately, any budget analyst worth his or her salt knew that the real pain was always going to come when federal programs that were labor intensive started to implement furloughs, layoffs and hiring freezes and the services they provided had to be curtailed. That was always going to take a month or more because of the process that needs to be followed to notify employees.

But the fact that labor-intensive programs didn't reduce services immediately when the sequester began on March 1 never meant that it wasn't coming. It always was and the protests that the White House was playing fiscal chicken little were simply wrong.

That why it's hard not be be at least somewhat amused by the mock congressional Republican outrage over the problems that started to be felt this week by airline passengers because of the sequester-related furloughs and other personnel changes at the Federal Aviation Administration.

It's amusing because the air traffic control slowdowns were totally predictable. At least 70 percent of FAA's expenses are personnel-related so it was inevitable that the 5.1 percent across-the-board sequester cut would be felt in everything the agency does including -- or especially -- in its primary function: managing air traffic. When you set up a system like sequestration that requires an agency or department to cut every program, project, and activity by the same percentage, and when an agency's spending is mostly for salaries and other compensation-related expenses, it's not hard to see from the start that there has to be an impact on the number of people doing that agency's work.

No amount of outraged statements from Senate and House Republicans changes that budget reality.

It's also amusing because congressional Republicans refused to believe the warnings that were coming from the agencies and departments themselves about what the sequester would do to their operations when they were issued in January and February.

They also flatly denied what the White House was saying at the start of the year about the impact the cuts would have on government services. The administration was fear-mongering, they said, even though it was clear to anyone who could read the federal budget that agencies like the FAA would have no choice but to reduce the services they provide and that airlines and passengers would feel the changes.

It's also amusing because what's happened this week with the FAA has happened before in 1995 and 1996 during the two government shutdowns. Anyone who lived through it will tell you that there was almost instant surprise, shock and anger about the national parks being closed because few realized it would actually happen or believed it when they were warned.

There are, however, three differences between what's already happened this week and what happened 18 years ago.

The first is that the White House actually had more discretion in 95-96 than it has today. President Clinton had the authority to exempt critical programs -- like FAA -- from the shutdown. By contract, President Obama has no such power when it comes to the sequester.

The second is the people who have been affected. In 1995 and 1996 it was campers, hikers and RVers. This week it primarily was salespeople, Wall Streeters and business travelers.

The third is that there was a more or less instant cure for the shutdowns in 95-96 because the problem could be stopped quickly by passing a continuing resolution and reopening the government. This time, the debate will be far harder because the decision has a number of nuances. Are the funds taken from somewhere else to keep the planes flying on time? Should other government services be similarly rescued? Would it be better just to spend more and increase the deficit to restore these services? Will supporters of the other programs that might be cut to pay for FAA et al allow that to happen?

In the meantime, it's impossible not to see this week's congressional GOP complaints about the sequester either completely disingenuous, incredibly naive or totally uninformed. Of course it's also possible that all three apply at the same time.

Why Do Bowles And Simpson Even Bother?

Stan Collender — Fri, 19 Apr 2013 11:25:59 +0000

Erskine Bowles and Alan Simpson, who stopped being the co-chairs of a failed deficit reduction commission at the end of 2010, are at it again. At some point today they will unveil yet another B-S plan they say will reduce the deficit and debt to manageable levels.

Never mind that they completely failed in 2010 to get their own commission to agree to what they recommended.

Never mind that since the B-S commission failed, Congress has overwhelmingly rejected several efforts that supposedly were based on what the two co-chairs recommended.

And never mind that after these repeated failures neither Bowles nor Simpson have any standing to offer a a new plan that is so politically toxic it has no chance of (1) being taken seriously, (2) jump starting negotiations or (3) having any positive impact whatsoever.

Watching Bowles and Simpson fight for relevancy in the federal budget debate these days is a bit like a rock band from a previous era going on tour but having to play in much smaller venues because its audience is so tiny that the arenas make no sense.

Or it's a bit like a professional athlete who is still trying to prove him or herself by playing in semi-pro leagues.

Why submit yet another deficit reduction plan that absolutely is destined to fail? My guess is that it's at least partially intended to get Bowles' and Simpson's more speaking opportunities and to prevent their fees from falling to far too fast from the $40,000 each that earlier in the year they were rumored to get from joint appearances.

Obama 2014 Budget Shows Adminstration is Trying To Divide GOP -- And It's Working

Stan Collender — Mon, 15 Apr 2013 10:46:38 +0000

I decided not to comment immediately on the Obama 2014 released last week because I thought the usual instant micro analysis of what the president proposed was likely to be largely besides the point..

The Obama 2014 budget has far less to do with what was proposed than almost any other presidential budget in history. It's real purpose...and value...comes from understanding it as a document designed to drive a wedge between House and Senate Republicans.

To a certain extent it's hard to understand why more of the people who comment on the federal budget -- that is, almost all of Washington -- didn't get the fact that the individual proposals in the Obama plan weren't the big story. Regardless of the reasons for it being so late (some were legitimate, some were not), a president's budget that's sent to Congress more than two months after the statutory deadline and after the House and Senate have already adopted their own budget resolutions should never be analyzed in the same way as other presidential budgets have been. It simply won't -- or can't -- have the same micro impact on the budget debate even if it was going to declared dead on arrival anyway.

But the failure to creatively review the Obama budget wasn't all that surprising because (1) looking at individual spending and revenue proposals immediately after the budget is released is what has always been done, and (2) this is what gives interest groups their best ability to raise money by showing their members how aggressively they're defending their interests.

With the perspective of the five-days that have passed since the Obama FY14 budget was released, here's what I see.

As part of its so-called charm offensive, the White House clearly is using its budget proposal to appeal to Senate Republicans and get them at least to use more moderate language when talking about the administration. That would have been far more difficult had the president not included the chained CPI proposal in the budget, which seemed to be the price of admission and political litmus test for Republican senators.

The chance of Republican Senators agreeing with the White House on much of anything are still small, but they are now definitely greater than the they were before the Obama budget was released.

The divide and conquer strategy already seems to be working. I've heard from several House GOP staff the past few days that there is a great deal of anger in the House Republican caucus about the willingness of Senate Republicans to talk with the administration on tax and spending matters.

The White House also got the unexpected bonus of it's proposals dividing the House GOP. The statement from Rep. Greg Walden (R-OR), the chairman of the National Republican Congressional Committee, that the president's CPI proposal should be rejected because it cuts Social Security, was almost immediately denounced by House Speaker John Boehner (R-OH) and the Club for Growth.

The Obama CPI proposal was also dismissed out of hand by GOP stalwart Grover Norquist and his Americans for Tax Reform because it would result in higher taxes as well as lower mandatory spending.

And I'm not convinced that the CPI proposals put Democrats in as difficult position as has been reported recently. First, it's not going to happen before the 2014 election because the mechanism for it -- a grand bargain on taxes and mandatory spending -- is so unlikely. Second, the president, who is not running for reelection, has proposed something that House and Senate Democrats can -- and will -- denounce and vote against. This will give them the ability to strengthen their pro-Social Security credentials.

Put it together: A divided GOP + independent voters being more inclined to think poorly of Republicans + Democrats who have reconfirmed their support for Social Security.

That makes the impact and import of everything else in and about the Obama 2014 budget decidedly less.